Higher-priced coking coal probably will get a new steel industry’s transition to greener production methods and also the value-based pricing of iron ore. Higher-priced coking coal raises the cost of producing steel via blast furnaces, in both absolute terms and relative to other routes. This typically leads to higher steel prices as raw material prices are passed through. It would also accelerate the hole transition in steelmaking as emerging green technologies, like hydrogen reduction, would be competitive in comparison with established production methods sooner. The need to reline or rebuild blast furnaces roughly every ten to fifteen years at a price that varies between $100 million and $300 million presents steelmakers with clear decision points, so that they will likely need to measure the price of emerging technologies, including hydrogen-based direct reduced iron, and select to change their blast furnaces.
Increased coke prices would also affect the value-based pricing of iron ore. Prices for different qualities of iron ore products rely on their iron content along with their chemical (mainly phosphorus, alumina, and silica content) and physical composition (lumps versus fines versus pellets). Lower-quality iron ores require more energy to scale back, resulting in higher coke rates in the blast furnace. Higher coking coal prices improve the cost penalty suffered by steelmakers, ultimately causing higher price penalties for low-grade iron ores. This might affect overall iron ore price dynamics in 2 different ways, depending on the degree of total iron ore demand. In a scenario, if total interest in iron ore could be met solely with high-grade iron ores, it’s likely that benchmark iron ore prices will continue to be steady. However, price discounts for lower-grade ore would increase significantly, potentially pushing producers on this material out of the market. In a alternative scenario, if low-grade ore is required to meet overall demand, both benchmark iron ore prices and discounts could increase significantly, so that low-grade producers would continue in the market as the marginal suppliers.
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